After five years of enduring crisis, market prices are no longer determined by the considered assessment of independent investors
acting rationally (if indeed they ever were), but simply by expectations of further monetary stimulus. So far, those expectations have not been disappointed.

The Fed, the ECB and lately even the BoJ have gone “all- in” in their fight to ensure that after a grotesque explosion in credit, insolvent governments and private sector banks will be defended to the very last taxpayer.

Conventional wisdom is that such moves are justified during this period of economic slowdown, as everyone agrees that the market is ’deleveraging’. But as the consistently excellent Doug Noland points out, this idea of deleveraging (i.e. reduction of available credit) in the US is a myth. In the second quarter of this year:

- Consumer credit in the US grew by 6.2%, the highest pace in nearly five years;
- US non-financial credit market debt grew by 5%, the highest pace in nearly four years;
- Total household debt increased 1.2%, the highest pace in over four years;
- US Treasury debt has increased 110% in four years;
- After contracting by 1.2% in the first quarter, state and local borrowing is now up 0.8%